Unemployment and regulation

Here’s a note I sent to a friend’s father, during an e-mail discussion on unemployment:

Regarding unemployment, I think it’s more complicated than technology, women in the work force or immigrants.  At least in the US, we’ve had much greater upheavals over the last two hundred years than we are currently experiencing. Farm work went from 85% of the population to less than 3%. The waves of immigrants in the early 20th century dwarfed those we see today.  Millions of women entered the work force in WW II, only to return home when 10 million men returned from Europe looking for jobs.  At that same time, war manufacturing ceased and government spending was slashed by 60%.

Through all this job creation kept pace with demand, even while the population of the country tripled.

That’s not happening this time and that’s the riddle I’d like to solve.  Why is this recession and the more mild one in 2000/2001 lasting so long and why is the recovery jobless?

I think several factors are to blame. First we have a hang-over from a debt binger through the 90s and 00s.  We massively over built houses and offices and golf courses, so now there is just no demand for the brick layers, painters, mortgage processors and real estate agents who had good jobs during the bubble.  Those jobs aren’t coming back anytime soon.

The second factor is, we’ve built a regulatory thicket which makes it difficult or impossible to start a business.  Where once anyone with a car and a work ethic could run a cab, it now costs 1 million dollars, literally 1 million dollars, to get permission to operate one cab in New York City.  That career is closed to new entrants.  Many cities and states have “Certificate of Necessity” laws which require someone wanting to start a new business to prove the community needs that business, and allows the people he wants to compete against to say “No, we’re serving this market just fine.”  Occupational licensing laws force everyone from hair dressers to florists to spend thousands of dollars and years studying for a licensing exam which will be judged by, you guessed it, the established florists the newbie wishes to compete against.

These kinds of laws gum up the labor market, prevent young people and immigrants from getting a foot in the door and cause middle class kids to warehouse themselves in university for years, racking up debt and avoiding the harsh job market.

What we need to fix this is elbow room.  A place where an ambitious kid with an idea can try his luck and succeed or fail on his merits.  In the few areas of Internet development that have not already succumbed to the scoliosis that effects the rest of society, we can still find the dynamic growing culture that used to characterize industry.  But it is disappearing fast.

Anarchy in Fairfax County.

Yesterday I left the house around 6:15 am to go to my gym. On the way there, I encountered a dead traffic light. No flashing yellow, no signals, nothing.

It was the intersection of a fairly major road and a minor road leading into a neighborhood.

The four or five of us on the major road slowed down and went through the light. The 2 cars on the minor road waited and went through the intersection after we’d passed.

On the way back though, traffic had picked up considerably and there were now cars waiting on both roads, in all 4 directions. To accommodate the heavier traffic, the flow had changed. Now people were treating the intersection like a four way stop. Two cars on the North/South road would go through, then 2 from the East/West road.

I sat through five or six cycles and not one person violated the norm of the four way stop.

That was it. No light, no traffic cop, no signals at all. Just anarchy, solving a problem among strangers.

Anarchy gets a bum rap.

When most people think of anarchy, they think of bomb-throwing radicals who want to destroy society.  If they remember any of their 7th grade history class, they remember that the Archduke Ferdinand of Austria was assassinated by a supposed anarchist, triggering World War I.

These hardly seem like the kind of people who could solve a nasty traffic problem.

That’s because we use the word anarchy in several different and incompatible ways.  In popular usage, anarchy means a lack of law, a break down of the rules that allow society to function.  In this view, anarchists are bomb-throwing radicals bent on destruction for destruction’s sake. Technically, such people should be called Nihilists, not Anarchists, but the difference is lost on most people.

Donny: Are these the Nazis, Walter?
Walter Sobchak: No, Donny, these men are nihilists, there’s nothing to be afraid of.   – The Big Lebowski

There are economists who study Anarchy seriously, like Peter Leeson of George Mason University and maybe 3 others.  For them, anarchy retains its original meaning; not a lack of law, but a lack of rulers.  In this view, individual people create laws from the bottom up, based on experience and trial and error. They follow these laws because doing so helps everyone get along and make their way in life.

These laws are enforced through a variety of non-governmental mechanisms, including the threat of lose of reputation in the community, shame and shunning. These mechanisms are strong enough to cause most people to follow the norms of the society most of the time.

By this definition, there is a surprising amount of anarchy in the world. In international relations, most interactions between countries are between sovereign peers with no over-riding ruler enforcing treaties or borders. (There are some glaring exceptions in recent decades, obviously). Instead, threats of peer-to-peer retaliation, lose of access to international markets and funds and sometimes, military threats, are the stuff  of international regulation.

In modern times, international trade is largely regulated by anarchy.  In the colonial era, countries would use military means to enforce trade obligations and contracts in other countries (usually obligations and contracts which had been unilaterally imposed on the weaker country by the stronger).  This was law enforced by a ruler, usually a monarch.

Today, international trade disputes are much more likely to be settled using anarchic mechanisms like those used in international relations.

Anarchy even rules our every day lives.  The vast, vast majority of us behave as decent, civilized, social people, not because there are policemen constantly looking over our shoulders, but because we want to. Following the norms and emergent laws of our society, enforced by ruler-less mechanisms like reputation and shame, makes us safer, more productive and happier.

These anarchic mechanisms are even strong enough to order interactions between complete strangers who will never meet face to face.  Like drivers at a defunct traffic light.

A Note on Four Way Stops

There are times when the formal law, as defined by the ruler, conflicts with the emergent law of the anarchic people. In those cases, anarchy almost always wins.

Yesterday’s traffic light is a perfect example. The formal law says that at a four way stop or malfunctioning traffic light, one car should pass through the intersection at a time and right-of-way proceeds counter-clockwise (as viewed from above) around the intersection.

Of course, no one ever follows that law.  If you try to negotiate a four way stop using this rule, you’ll like be subjected to dirty looks, horn honking and other forms of social disapproval.

The way a a four way stop really works is that two cars on one of the roads, one in each direction,  cross the intersection, then two cars, again one in each direction, go. If someone has to make a left, the pattern is broken for one cycle, then quickly reforms. Frequently, drivers making right turns sneak through while two cars going straight occupy the body of the intersection.

Despite this apparent chaos, four way stops are not abattoirs. One rarely finds burned out cars and corpses piled around four way stops.

It seems that people are just smart enough to adopt rules which let them perform common tasks, like driving past another car, without risking certain death.

Libertarian Charity

One cliche about libertarians is that we are all radical individualists who expect everyone to  pull his own weight and think that “The devil take the hindmost.” is a good way for a society to operate.

This stereotype, like most, is untrue. Thoughtful libertarian writers have always stressed that voluntary cooperation and charity are the best way for us to care for one another. And we have practical experience, from mutual aid societies to volunteer fire departments, that prove that these mechanisms work.

Still, it’s easy to see where people get that impression of us.  There’s a certain book in which the rugged, individualist heroes really do take their bat and their ball and abandon everyone else to devil.  We also have an unfortunate tendency to stress the “Just leave me alone” side of libertarianism.

But I think there may be another reason.

Invisible Libertarians

I’m a regular platelet donor. A couple of times a month, I’ll spend 2 hours bleeding into a machine for the benefit of strangers I’ll never meet and who will never know who I am. Not to brag, but I think that’s a fairly selfless act (full disclosure, I do get a free packet of Oreos out of it).

But when I donate, I never do it as a libertarian.  I don’t wear a Ron Paul t-shirt to the donation center. I don’t band together with other libertarians and go as a group. I don’t try to pull the other donors into political conversations.

I just do it.

It’s the same for all the other community work and charitable work I do.  It’s not that I, a libertarian, don’t do these things. It’s that, since I don’t do them as a libertarian, libertarians in general get no credit for these activities.

When I do explicitly libertarian work, its political or educational, so it doesn’t count like blood donation or highway clean up does.

I’m a sample size of one and you can draw any curve you like through one data point. Still, I think I’m on to something. None of the other libertarians I know are bad people. They are all active in their communities and they all care about other people.

Perhaps, for the sake of our public image, we should formthe Libertarian Services Organization.

Just so we get credit for what we do.

How the free market would have desegregated the South.

“Would the free market have desegregated restaurants in the South?”

That’s the question Jon Stewart asked Judge Andrew Napolitano on the Daily Show a few weeks ago (the exchange starts at 1:50 seconds).  I blogged about that encounter once here.

Today, a conversation with an acquaintance reminded me of this question and provided an answer.  “Yes.”

We were talking about our experiences, over the last 20 years, with racism in a large Southern city.  She is a black woman who had been passed over for positions, denied credit for her work and shut out of the inside track many times.  While I am a white male, I’d experienced the same thing vicariously through family and friends. Admittedly, my experiences were second hand, but the stories we shared were similar enough that we could laugh and commiserate over them.

One thing we didn’t share was a sense of progress over the last two decades. Where she saw no change, I saw steady improvement. She’s given up on the place and won’t go back. I look forward to my periodic trips down there.

I know our skin colors affect how we see this city and her direct experience is much sharper than mine.  But there is an important difference, beyond our color, which explains a lot about how we see that city.

Location, Location, Location

That difference was where we go when we visit. She spends her time downtown in and around City Hall. I always go to the outer suburbs where all the tech companies are headquartered.  It’s only twenty miles, as the crow flies, between the two locations. But those twenty miles make all the difference in the world.

She complained that the city is all about political connections, who you know, and an  elite that is obsessed with protecting access to power and privilege.  Minorities and outsiders are expected to know their place. A black mayor and his insiders might wield power but, outside of that circle, anyone with skin darker than a heavy tan is likely a waiter or a driver.  She was called a “trail blazer” for the work she did, even though those trails should have been blazed 60 years ago.

I, OTOH, talked about a city where people of all colors worked and socialized together. Where you were rewarded according to how smart you are and how hard you work.  Where the head of engineering at one of my partners is a black guy, in charge of dozens of men and women of all colors, and people take it for granted.

Her city is one of hierarchy, favoritism and court politics. Mine is one where blacks, whites, Chinese, Indians, Pakistani, Latin Americans and even Canadians freely live and work together, because they want to.

How the free market desegregates.

For me, the biggest differences between her city and mine are competition and how people are rewarded.

In the political world, power and the rewards that come with it are often concentrated in the hands of  very stable coalitions. Those coalitions can afford to discriminate against others for flimsy reasons because the powerless have nothing to offer the powerful and few ways to challenge the coalitions.  There is little to lose from indulging racist tendencies.

The entrepreneurial free market has a different set of incentives.  A racist can still ignore the talents of entire groups of people, but in doing so he slashes his own wrists.  If his competitors don’t share his prejudices, they gain an advantage in finding competent employees and will wear down the self-limiting racist.

This isn’t just a pie-in-the-sky, libertarian dream. We see it in the real world all the time.

It’s no accident that the tech world has the most integrated work force of any industry. Nor is it a coincidence that tech companies were among the first to offer domestic partner benefits or that so many of the testimonials in the It Gets Better campaign come from people at tech companies.

Not perfect. Just better.

I’m not saying that free market enterprises are perfect.  They obviously are not.

I’m old enough to remember when Chinese and Indians first started working widely in the US tech industry.  There was plenty of overt racism aimed at them.

But that phase of integration passed quickly.  At my second job out of college, a quarter century ago, the division was run by an Indian who had started as an engineer in the 70s.  He employed several hundred people and was a well respected and effective leader.

There are still markets where it is possible to indulge racist prejudices. Old-boy networks and institutional biases are powerful and don’t fall quickly.  The smaller and less connected a market is, the more it resembles the rigid, static political world and the less costly it is to behave like a racist.

BTW, I said “behave like a racist” deliberately there. One limitation of market driven integration is that it can only change behavior, not minds. It’s possible for a manager to hire and promote minorities, for purely avaricious reasons, while hating them. That’s what drove the early days of professional sports integration.

But in a broad, competitive market, that attitude cannot survive long. People are very good at spotting a false front and the boorish attitudes it conceals. Talented people will seek better positions at better companies rather than put up with hidden contempt.  Since  familiarity with different peoples and different cultures bring those cultures together over time, companies which treat all their people with respect will get better and better with time. Those companies will attract the best people and, in a virtuous circle, will pull ahead of their backwards competitors.

The process takes time, but we’re well into it in the tech market.  It’s fairly common for me to be the only white guy in a meeting. The first generation of female engineers have worked their ways into upper management and a second and third generation has taken their place.

Seeing with a white guy’s eyes.

As I said above, I’m a white male. I see through a white guy’s eyes and I’m sure there is a lot of racism below of the surface of my world. Racism I never see.

But even if I miss 50%, 75% or even 90% of the racism that is there, my free market world beats the pants off her world of political patronage and cronyism.  At least in my world, minorities have a shot. They may have extra obstacles to overcome.  Connections still matter and some people have an easier road to success than others, but the playing field is much closer to level in my world.

We’re also making progress faster in the free market world than in the political world. In my world, we don’t insolate ourselves from other cultures. We seek them out. Inter-racial marriage is common. We compete on new foods and new styles of music. If Thai has gotten boring, we go for Laotian or Nepalese.

I’m not saying the free market world is perfect, at least not yet. But, like in just about everything, competition in a free market is making us better faster than pretty much any other realm of endeavor.

Is the “Business Cycle” real?

For over a hundred years, economists of various schools have debated how to tame the “Business Cycle”; the periodic ups and downs of the economy which cause so much irrational exuberance when on the up-swing and so much misery when on the down swing.

The one thing missing from this debate is whether or not the economy actually follows a cycle in any meaningful sense of the words.  If the “Business Cycle” isn’t really cyclical, then do government interventions intended to tame the cycle have a chance of working?

No one denies that sometimes economies roar and sometimes they whimper.  That is obvious from just looking at history.  The important question is does this count as a cycle?

Compare the economy to the seasons. With the seasons, there is an undeniable cycle. Winter, Spring, Summer, Fall. One follows the other as regularly as night follows day. The cycle is set by real physical laws and is as undeniable as night following day.

As a contrast, look at personal health. Sometimes I am health. Other times I have a cold. The fact that health and sickness alternate does not mean that there is an underlying causal mechanism driving the two and it doesn’t mean that “counter-cyclical” interventions will help matters.

If Keynesians or some other interventionist argue that the “Business Cycle” requires a government response, it’s fair to ask them if the apparent cycle is real or if it is an illusion caused by switching between two incompatible states.

The “Business Cycle” view says we can steer our way out of the current mess. The illusionary view says collective action is doomed to fail.  We must trust individual people to find the path out of this mess.

How to be very popular at parties. Buffalo Chicken Wing Dip.

It may be be the best party dip ever.

Cheap, easy, fast and so good that last night it literally made two pescatarians abandon their 20 year old dietary restrictions.  They thought it was crab at first, but didn’t stop eating when I told them it was chicken.

Keep handy for holiday parties, play-off games and other occasions.

Buffalo Chicken Wing Dip

2 lb pre-cooked canned chicken

1 tsp butter

1 cup chopped celery

2 8 oz pkg cream cheese

8 oz blue cheese dressing – the chunkiest, strongest you can find

12 oz Frank’s Hot Sauce – Always use Frank’s. Nothing else gives you that genuine Buffalo flavor

1 cup shredded cheddar cheese

2 large bags Frito’s Scoops corn chips

Pre-heat oven to 400 degrees.

Shred chicken and sauté over medium heat with butter and celery till celery is soft.

Add cream cheese and blue cheese dressing.  Heat until melted, stirring occasionally.

Mix in Frank’s Hot Sauce and transfer to a 9 x 13 inch casserole dish.  Bake until bubbly, about 10 minutes.

Top with cheddar and bake until cheese melts.

Serve with large Frito’s Scoops.

If I were the Judge. How I would respond to Jon Stewart.

The sky is green

Imagine that you are in conversation with an intelligent, articulate person who by all appearances is completely sane, yet insists that the sky is green.

You might try to convince him that the sky is blue by simply saying, “Look up!  It’s blue!”, but that is unlikely to work. If he really isn’t crazy, there must be some reason he thinks the sky is green despite the evidence of his senses.  If you go down the “Just Look” route, you will end up shouting past each other, loudly and slowly.

“The! Sky! Is! Blue!”  “No! It’s! Green!”

Tell it to the Judge

This is exactly the situation Judge Andrew Napolitano found himself in last week, when he appeared on The Daily Show with Jon Stewart . For 20 minutes, through the broadcast segment and two segments on the web, Jon and the Judge talked past each other.

They utterly failed to understand each other and, it pains me to say, I have to lay most of the blame at the Judge’s feet.  For him, the correctness of the libertarian view is so obvious that if he just points it out to people, the scales will fall from their eyes and they will see.

This style of argument is, unfortunately, very common among libertarians and it damages our cause.

As an example, in the first web segment, about 2:50 in, Jon tries to make a point in favor of some form of market regulation. The Judge interrupts him saying, the Free Market “always produces the best product at the lowest cost.” At this point, the audience moans, Stewart puts his hand to his mouth and the Judge has lost any chance he had of convincing anyone of our ideas.

It’s a text book Green Sky moment.

Liberty is not obvious

Here’s where the Judge went wrong. If a man as smart, as well informed and as plugged-in as Jon Stewart doesn’t already realize that the Free Market is the best way to run an economy, there has to be a reason for it. It’s not that he just never noticed.

Something is keeping him from seeing what is right in front of his face. It might be his liberal ideology. He might be a closet Marxist. Mostly likely, he might just mistake the heavily regulated, mixed economy we live in for a real Free Market, as many people do.

None of that matters. What’s important is that given Stewart’s beliefs (and the beliefs of his 1.5 million viewers), the Judge was not going to convince him by saying “the sky is blue”. By simply asserting the correctness of his position, the Judge lost an opportunity to engage with those 1.5 million and maybe change some minds.

How he should have answered

There was a better way for the Judge to have handled that exchange.  I’d have assumed that Stewart sees the “Free Market” as a smoke screen for cronyism, bail-outs, political favoritism, and all the other corruptions that plague our system. For libertarians, the difference between a Free Market and our system is as obvious as the difference between rock and air. But most people don’t see it that way.  They’ve been told their whole life that “The United States is a Free Market”, “We live in a Free Market.” and “Our Free Market system beat the Communists”.

Why shouldn’t they believe this mess we live in is a Free Market when that’s all they’ve ever heard?

So the Judge’s first job was to explain the difference. As long as the audience thinks Free Market means the status quo, they’ll never listen. So he should have first admited to all the faults of our current system and then drive home the point that our current system is not a Free Market.

Then he could have talked about how well the Free Market (or as close as we can get to one) works versus the more heavily regulated sectors of the economy work. This is an easy distinction to make, too. It’s not a coincidence that the most screwed up sectors of the economy, Housing, Finance, Education and Health Care, are also the most deeply distorted.

After making that point in 3 or 4 sentences, the Judge could have gone looking for common groun with Stewart instead of looking for Randy Jackson in the audience.

That would have been much more convincing.

What century do you want to go back to?

There was another missed opportunity just before the Free Market exchange. At 2:00 minutes into the first web segment, Stewart asks the Judge, “Would you go back to 1890?”  This question plays on the stereotype that libertarians are throw-backs; that we want to return to some mythical Golden Age where Robber Barons ate caviar off the backs of the down trodden and used the poor as fire wood.

Any libertarian worthy of his copy of “The Fatal Conceit” should have been able to knock this question out of the park. The answer is simple, “I don’t want to go back to any decade. I want to go forward as fast as we can. In the last 250 years freedom and liberty have created the greatest advances in  well-being and human dignity the world has ever seen and I want that wave to keep going.”

Just look at what has happened in two centuries. Mass chattel slavery has been eliminated in the developed world. Thank you Scottish Enlightenment. Put a ‘W’ in the Libertarian column.

Women are no longer the property of first their fathers and then their husbands. Another ‘W’.

A billion people have been lifted out of poverty by two countries taking just the smallest steps toward economic freedom.

We’re living longer, healthier lives. Child birth is no longer a leading cause of death for women. For the first time in history, our poor people are too fat.

With all that behind me, why won’t I expect the future to be even better?  I don’t want 1890. Give me 2090!

Selfishness is not a virtue!

One more example. At the beginning of the second web segment the Judge says, “I’m going to blow you away. Selfishness is a virtue.”

If my first two examples were missed opportunities, this was just a blunder. Never say “Selfishness is a virtue.” It’s not. I don’t care what Ayn Rand told you. It’s not.

More importantly, saying “Selfishness is a virtue.” or “Greed is good.” never convinces anyone. It only gets you branded as a kook. A heartless, soulless, drone who would sell his own mother for the right price.  It makes us look foolish and evil when we say things like that.

The whole point of going on the Daily Show and talking about liberty is to win hearts and minds. There aren’t enough of us to make a decent bowling league, let alone change a nation. Saying “Selfishness is a virtue”, whether because you’re trying to dog-whistle to old Objectivist friends or pass a libertarian purity test or score clever debating points, damages that mission.

Selfishness is not a virtue because, by its very definition, selfishness means “devoted to or caring only for oneself; concerned primarily with one’s own interests, benefits, welfare, etc., regardless of others”. To hold that up as a virtue is horrible. No wonder people think libertarians are atomistic individualists who want to go live perfectly free lives on desert islands.

The Judge could have made his point much more effectively by following in Adam Smith’s footsteps. Smith didn’t say the butcher, brewer and baker provided our dinner because of their selfishness or greed. He said it was because of their self interest.

Self interest is not the same as selfishness. You can be interested in your own good without ignoring others or caring only for yourself. You can be self interested and still have friends, participate in your community and help your neighbor. There’s no need to apologize for being self interested and none of the evil connotations selfishness and greed have.

If the Judge had started with self interest, he could have talked about how in a Free Market the only way to get ahead is to find a way to serve other people. And that the reward of more money can lead the self interested man to find better and better ways to serve people. This is the greatest thing about “truck, barter and exchange”. And we throw it away when we talk about how selfishness is a good thing.

The libertarian communications gap

I’m willing to bet that while the Judge was with Stewart thousands of libertarians were tweeting their friends, “Judge on Daily Show. RU watching?”

I’m also willing to bet that the Judge did not change a single mind that night. If you were already a libertarian, you loved his performance. If you weren’t, you walked away thinking, “God, what a bunch of nuts.”

For a group of people who have such strong ideas, libertarians are, in general, really bad at communicating those ideas. We shout when we should listen. We think “Read Man, Economy and State!” is an effective argument. We speak in code words, like Leviathan and Anarcho-Capitalism, that no one else understands.

It’s not enough for us to be right. We have to be persuasive.  I said above, that I’m very optimistic about the future and I am. But there are still fights to win and right now, we’re under attack from the left and the right for challenging their statist privilege (“statist privilege”, see even I do it).

We have to be clearer. We have to talk, not shout. We have to reason, not bludgeon.

Otherwise, we won’t win and the future won’t be all hover crafts and broccoli ice cream.